Violations & Fines

Electro-Glass Products was found guilty of violating the Arms Export Control Act in July 2007; in September 2007 the conviction caused the company to be debarred. The DDTC has recently posted the policy regarding new approvals for companies requesting Electro-Glass Products.

Transaction Exceptions will be granted to companies requesting Electro-Glass Products with respect to the following:

• Overriding US foreign policy or national security interests;
• Law enforcement interests that are consistent with foreign policy or national interests of the United States; or
• Other compelling interests that are consistent with the foreign policy or national security interests of the United States. Read More

The Bureau of Industry and Security, US Department of Commerce has denied export privileges to Winter Aircraft Products SA of Madrid for a period of 10 years. The company was denied privileges because the BIS found that the company had taken actions with intent to transship aircraft part subject to the Regulations without a license.

Although the company did not actually follow through with the transshipment, their intent was enough to deny them exporting privileges from the US. It is now an export violation to directly or indirectly export, reexport or even “think” of doing business with this company beginning on May 19, 2008.

More information:

• efoia.bis.doc.gov/exportcontrolviolations/e2047.pdf (PDF)

TFC Manufacturing Inc., a California-based aerospace fabrication facility has been charged with violating the “deemed export” rule. The Commerce Department’s Bureau of Industry and Security has required the company pay a $31,500 penalty.

From March to April 2006, TFC Manufacturing Inc. released unlicensed US technology for the production of aircraft parts classified under ECCN 9E991. The company gave the information to an employee who was a national of Iran, under the Export Administration Regulations; this release of technology to a national of Iran is deemed to be an export and is prohibited without a license.

More information:

• BIS Imposes $31,500 Penalty on California Company For Violating Deemed Export Rule (International Trade Law News)

Kabba & Amir Investments, Inc., d.b.a. International Freight Forwarders (IFF) of Canada have been fined $6,000 for export violations. The company is a freight forwarding company. In June 2000, IFF took possession of shipment of X-Ray Film Processors, items subject to the Regulations, and exported them to Cuba without a license.

The company worked with known and unknown co- conspirators to export the processors to Cuba via Canada without obtaining a BIS export license. IFF violated the regulations when they took possession of the items in the United States and took them to Canada.

After several reviews, and IFF claiming that they were unaware that a license was necessary, BIS found that they do not have to prove that the company knew or did know that they needed a license. As long as IFF pays their fine within 30 days of their final charging letter they will not be denied export privileges, if they do not, their export privileges will be denied for three years.

More information:

• efoia.bis.doc.gov/exportcontrolviolations/e2045.pdf (PDF)

Willbros Group Inc. and Willbros International Inc., a wholly owned subsidiary, have agreed to pay over $32 million in penalties, disgorgement and interested in criminal case with the Department of Justice and with the Securities and Exchange Commission. The companies are both publicly traded and provide construction, engineering and other services in the oil and gas industry. Read More

Engineering Dynamics of Kenner LA has been fined $132,791.39 for export violations. (Editor’s note: I would love somebody to tell me how they came up with the 39 cents. — John Black) The company has been exporting an engineering software program from the US to Iran via Brazil without authorization from the Office of Foreign Assets Control (OFAC) from March 1995 into February 2007 to export the software until the US Department of Treasury discovered the illegal exports.

Over the years the company and its co-conspirators would market, sell, and service the engineering software program to their Iranian clients through another conspirator in Brazil. Engineering Dynamics will not be suspended from export transactions as long as their entire penalty is paid as agreed upon.

More information available at:
BIS - e2044.pdf (PDF)

The US Department of the Treasury’s Office of Foreign Assets Control has posted a summary of civil penalties it recently assessed:

• Mahdavi’s A&A Rug company in Norcross, Georgia remitted $9,240 to settle violations of the Iranian Transactions Regulations. The company allegedly imported goods in violation and did not voluntarily disclose the matter to OFAC
• Morgan Stanely remitted $3162 for violations of the Narcotics Trafficking Sanctions Regulations. He issued instructions to a bank for a wire transfer from a SDNT’s account without an OFAC license.
• United Advantage Federal Credit Union paid $2,970 to settle allegations of violations of the Cuban Assets Control Regulations. The credit union acted without an OFAC license by processing a funds transfer destined to Cuba.
• Good Hope International, Inc. remitted $900 to resolve violations of the Iranian Transactions Regulations. The company used services of an Iranian vessel to transport goods from India to Holland without an OFAC license.
• Four separate individuals paid an amount totaling $4,648 for purchasing Cuban-origin cigars off the internet.

The full report is available at:

• OFAC - 04042008.pdf (PDF)

On April 17, 2008 Don Manzullo (R-Illinois) and Adam Smith (D-Washington), introduced new legislation to modernize the Automated Export System. The Securing Exports Through Coordination and Technology Act is described as being able to, “clarify the confusing US export system that punishes mistakes with costly fines” as well as “strengthen the government’s ability to crack down on deliberate violators” as described by Smith and Manzullo. The bill will also include provisions designed to improve the use and operation of e AES.

Under the Act the AES would be required to:

• Reject data submitted for exports that would violate US export control or sanction regulations by virtue of the destination country or entity;
• Alert the exporter of potential export license requirements under the EAR and/or the ITAR based on codes;
• Issue a fatal error notice when the data submitted includes: names, addresses or restricted entities or destination countries subject to US sanctions and embargoes;
• Issue compliance alerts or other warnings to the filer if: the data submitted includes an inconsistent classification number, a license exception which is not available for the country or ultimate consignee or if there is no license number

Exporters say that these types of errors happen often because of the many different export control laws and regulations they have to handle. Read More

Ben-Ami Kadish has been arrested on several charges of spying conspiracy. From 1979 into 1985 he was employed at the US Army’s Armament Research, Development, and Engineering Center. Beginning in 1980 Kadish, a US citizen, would take classified documents home and provide them to an unnamed citizen of Israel who would photograph the documents.

The Israel citizen was employed by the Government of Israel as the Consul for Science Affairs at eh Israeli Consulate General in Manhattan. He would direct Kadish on what documents he needed and met Kadish at his home to photograph them.

Of the numerous documents photographed over the years the most alarming were documents classified as restricted containing nuclear weaponry, major weapon systems of an F-15 fighter jet, and major strategies of the US patriot missile air defense system, noted as being “Secret”.

On March 20, 2008 Kadish received a phone call from the unnamed co conspirator instructing him deny any contact with him to federal law enforcement officials. The next day Kadish followed the conspirator’s orders and denied any contact with the individual and even the phone conversation from the previous evening.

Kadish is charged with 4 counts of conspiracy, that which include disclosing documents of US national defense to the Government of Israel, acting as an agent of the Government of Israel, hindering a communication to a law enforcement officer, and making a materially false statement to a law enforcement officer.

More information:

• DOJ News Release

French corporation, Cryostar France pleads guilty to conspiracy, illegal export, and attempted illegal export of Cryogenic Submersible Pumps to Iran. Cryostar has several businesses worldwide where they specialize in the design and manufacturing of cryogenic equipment. They were sentenced in the US to a criminal fine of $500,000 and corporate probation of two years.

Cyrostar was a middleman between Ebara International Corp., Inc. and “TN” a French company with a US subsidiary. Cryostar was to purchase the pumps from Ebara and then resell them to “TN” who would then forward the pumps to Iran. Cryostar falsely indicated that the final purchaser was the French company “TN” who would install the pumps in France, when all parties were in agreement that the pumps would go to Iran. The three companies created false purchase orders, and purchased as many component parts from non-US suppliers as possible to avoid any and all questions from US suppliers and to conceal their conduct. No export licenses were ever obtained for any of the items.

In 2004 penalties were imposed on Ebara and its former CEO Everett Hylton. At that time Ebara pled guilty to criminal violations and agreed to an administrative settlement, with combined fines of over $6.4 million dollars while Hylton agreed to personally pay $109,000. Ebara and Hylton’s schemed together to violate the embargo on Iran after some people in Ebara initially stopped an Ebara sale to Iran. Ebara falsified some documents and removed “made by Ebara” markings from certain items to evade US restrictions on Iran.

More information:

• DOJ Announces $500,000 Fine for Illegal Exports to Iran (WorldTrade Interactive)
• For the 2004 penalties: BIS News Release

Daniel Max Sherman a former physicist from Atmospheric Glow Technologies, Incorporated plead guilty to conspiracy with J. Reece Roth a professor at The University of Tennessee to transmit export controlled technical data to the People’s Republic of China. Between January 2004 and May 2006 the two worked with a Chinese graduate research assistant at the university where the professor and student researched military drone aircraft to develop plasma actuators.

In the court documents, prosecutors claim that Sherman and Roth both agreed amongst themselves to assign the Chinese student, Xin Dai, to the military development project. They never advised the Air Force or sought any special export licenses or consul.

At this time Sherman faces up to 5 years imprisonment and a $250,000 fine, the charges for the professor and student have yet to be released.

Patrick Rowan, Assistant Attorney General for National Security made a point, “Knowingly disclosing restricted US military data to foreign nationals represents a very real threat to our national security, particularly when we know that foreign governments are actively seeking this information for their military development.”

More information:

• DOJ News Release

So, you got some commercial hardware controlled by the Export Administration Regulations, and then you load some military software on to it. What do you have? You have an item that is now controlled by the International Traffic in Arms Regulations.

And even if the Commerce Department gives you many licenses for many exports of those things, you still have ITAR violations.

That seems to be what happened in this case in which Northrop Grumman Corp. reached a settlement agreement related to exports that Northrop Grumman discovered after it acquired Litton Industries in 2001. The violations Northrop discovered occurred from 1994-2001. According to documents provided to the State Department from Northrop the company had committed over 110 violations involving sales of 73 aircraft navigation systems. Northrop Grumman discovered the violations as it was working to install its compliance procedures in its new acquisition.

Read More

Even though our booming seminar business seems to confirm that the ITAR is vague on many points, it seems for now that a court has decided the ITAR is not unconstitutionally vague as it relates to the case of Qing Li.

Last year Qing Li was charged with conspiracy to export defense articles without a license and to smuggle goods from the US. Li attempted to export Endevco 7270A-200K accelerometers without a license to China and was caught by undercover agents.

Her case is now scheduled to go to trial. Qing Li’s legal defense ordered motions to dismiss the indictment and to suppress evidence but were shot down indefinitely. Li argued that the indictment should be dismissed on the grounds that the AECA and its implementing regulations are unconstitutionally vague as they are applied to her case. Her defense disputes that a person of ordinary intelligence could not have been able to determine if the Endevco accelerometer was a “military accelerometer” that required an export license. They supported this argument by showing a two page manufacturer-provided “public information” sheet regarding the accelerometers. The defense argued that, “[a] person of ordinary intelligence would likely deem that data sheet incomprehensible, and that the sheet does not indicate whether the device is for military or weapons use.”

The court denied her motion to dismiss claiming that the defendant failed to cite a single case in where the court found the AECA unconstitutionally vague, and whether or not she knew that the accelerometers were on the munitions list will be for the jury to decide. Her motion to suppress evidence was also denied as the subpoenas were all authorized, she had no reasonable expectation of privacy, and she lacked standing to assert any fourth amendment violations.

More information:

• Qing Li Indictment Update (ExportLawBlog)

Have you ever been in a meeting where you are gathering information to put together a license application, and one of your engineers or sales people says, “Don’t put that information in the application.” That will make the government deny the license.” Well, as you know, if you fail to include in an application certain information that would make the government deny the application, you probably are “omitting materials facts,” or as we say out here in my mountains, “lying.” Here is a story that validates that lying on an application can get you in trouble if the government finds out.

A Minnesota-based test system manufacturer, MTS Systems Corp. agreed to plead guilty to violating US export laws. The company submitted two false export license applications for exports to India. MTS now has to pay $400,000 penalty, implement a model export compliance program, and be on probation for two years.

Here is the story of the two “false” applications:

In Nov. 21, 2002, MTS received an inquiry to purchase its equipment from the Electrical Research and Development Association (ERDA), located in India. A MTS representative in India then confirmed to MTS employees that ERDA would be using the MTS equipment for testing nuclear power plant components. MTS, therefore, was required to obtain an export license from the Commerce Department. MTS did not initially apply for a license because the MTS employee in charge of export compliance stated that it was “extremely unlikely” that it would be approved unless the customer could make a “strong and convincing” argument that this test system would not and could not make a significant contribution to India’s nuclear energy programs. Neither the customer nor MTS ever attempted to make this argument to the Commerce Department.

Read More

Chi Mak, a former engineer for defense contractor Power Paragon, was sentenced to 293 months in federal prison and fined $50,000. Mak conspired with his wife, brother, sister-in-law and nephew to obtain naval technology and then export the material to the People’s Republic of China.

Co-conspirators from the PRC provided a task list for Chi Mak that requested specific defense information, including research regarding nuclear-powered submarines. The list contained instructions for Mak to take part in seminars and then compile information he obtained from the seminars onto computer disks. Nearly all of the information he obtained from the seminars was sensitive and subject to restrictions regarding its distribution, storage and handling.

Chi Mak and his wife would copy the information onto CD-ROM disks and then forward the disk to Mak’s brother, Tai Mak who would have his son take the data and encrypt it onto the CD-ROM disk. Tai Mak and his wife then took the disk and hid it in their luggage as they traveled to the PRC to deliver it, when they attempted to board the plane in Los Angeles they were arrested along with Chi Mak and his wife at their home and their son was apprehended and charged seven months later.

All conspirators have pleaded guilty and all face deportation back to the PRC.

More information:

• DOJ News Release